Eurozone government bond yields rose on Friday after forecast-beating US jobs data reignited expectations for an interest rate hike in the world's largest economy before the end of the year. July's non-farm payrolls report showed 255,000 jobs were added last month, far outstripping forecasts for 180,000. After the data, futures contracts priced in about a 46 percent of a Federal Reserve rate hike by year-end, up from about 34 percent beforehand.
German 10-year yields - the eurozone benchmark - were already higher before the numbers and added two basis points on their release. They were last up 3.3 bps on the day at minus 0.13 percent, having fallen some 5 basis points on Thursday after the Bank of England cut interest rates, among other monetary policy easing measures. Germany's most recently issued 10-year debt, a zero coupon bond maturing in August 2026, yielded minus 0.07 percent, up 1 bps, according to Reuters data.
Most other eurozone yields showed a less marked reaction to the jobs data. Spanish and Italian 10-year yields fell 1 bps on the day to 1.02 percent and 1.14 percent respectively. The Fed is the only central bank in the developed world on a path to tighter monetary policy, with Britain on Thursday joining mainland Europe, Japan and Australia in propping up growth and inflation with a looser approach.
And while the US government's advance reading of second-quarter growth came in at just 1.2 percent a week ago, some indicators suggest the rate of expansion will pick up significantly in the third quarter. "The US is the one bright spot...That's why I think there is so much focus on (payrolls)," said Andrew Wilson, chief executive officer of Goldman Sachs Asset Management for EMEA.
"If you have got steady growth and a tightening labour market, I think that is a recipe where the Fed will become increasingly uncomfortable with the very low level of rates."
The US central bank hiked interest rates in December for the first time in nearly a decade, but has held them steady since then amid concerns about persistently low inflation. The European Central Bank has been buying government debt and other assets since March 2015 in an effort to kick-start growth and inflation. Its cut its main refinancing rate to zero from m0.05 percent and its deposit rate by 10 bps to minus 0.4 percent in March.